Texas Grocer H-E-B Buys Delivery App Favor in Bid for Tech Growth

San Antonio—H-E-B, the retail and grocery store giant that operates 400 stores in Texas and Mexico, is acquiring delivery app Favor.

Favor, which connects people with on-demand “runners” who deliver groceries, food, and more to customers, will become a wholly owned subsidiary of H-E-B, which is headquartered in San Antonio and is the largest private employer in Texas. Founded in 2013 by Zac Maurais and Ben Doherty, Austin-based Favor will operate independently as a separate brand from H-E-B, according to a press release. Terms of the deal weren’t disclosed.

Jag Bath, who was hired as CEO in September 2015, will remain in his position and H-E-B says it is keeping all of Favor’s 50,000 runners. At its largest, Favor had expanded to more than two dozen cities across North America, but decided in 2017 to cut back its operations to Texas only in order to seek profitability. The company added a $22 million Series B round of funding last year, led by Austin venture capital firm S3 Ventures, to bring its service to more cities in Texas. It now operates in 50 cities in Texas, according to the news release.

Favor in September stated that it expected sales made through its app to rise to $100 million in 2017, up from the $60 million it reported in 2016.

As Xconomy’s Angela Shah has been reporting, brick-and-mortar retail stores have seeking to integrate new technologies into their operations, particularly by making acquisitions. Walmart (NYSE: WMT) has been working to better position itself against retailers like Costco Wholesale (NASDAQ: COST) and Amazon (NASDAQ: AMZN), revamping membership models and offering free shipping at its Sam Club’s business. Amazon and Target (NYSE: TGT) both made acquisitions in Whole Foods and Shipt for $13.7 billion and $550 million last year, respectively.

“With the combination of HEB/Favor and the recent acquisitions of Whole Foods by Amazon and Shipt by Target, I think we will look back in five-to-10 years and view trips to grocery store like we currently view trips to the local mall,” Charlie Plauche, a principal at S3 Ventures and a former board member at Favor, wrote in an e-mail. “Why would I spend time going there when I can have the items delivered to my front door at a low cost?”

Likewise, H-E-B says it is investing in technology to boost its digital and delivery services, such as the ability to order products online and get curbside pickup. Favor now gives H-E-B a consumer-facing technology for on-demand delivery, the grocer says.

“We see a unique opportunity with this partnership to support and accelerate each other’s growth through the sharing of experience, insight, and resources,” H-E-B chief operating officer Martin Otto said in the press release.

Xconomy Texas Editor Angela Shah contributed to this report.

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley